By William Fisher and Christopher Yang.

Last Updated November 18, 2001

Most Internet content today is "served" from a central system that
takes requests from a user's "client." Typically, the user
asks for access to information or other data; the requested content
is then "pushed" from the central system to the user. In this
model, the various visitors to a given web site do not interact.
By contrast, peer-to-peer technology (commonly known as "P2P") creates
conversations among individual personal computers (PCs). In
this respect, P2P systems resemble an affiliate network where information
(rather than referrals) is passed along many people.

P2P interactions are often initiated when one computer asks several
other individual personal computers whether they have a specified
file or type of information. Each computer to which the search
request is sent either responds or, more commonly, forwards the
request on to a second tier of computers, each of which may pass
the request onto a third tier, and so forth. As the request
"cascades," content across a wide network of machines is searched.
When a "match" is made, the sought-after file is transmitted directly
to the original requester.

Most applications of P2P technology are wholly benign. Problems
arise, however, when the material flowing through networks of this
sort is copyrighted and is being reproduced without the permission
of the copyright owners. For two reasons, nonpermissive P2P
file-sharing of copyrighted materials is extremely difficult to
police. First, the structure of P2P systems makes it hard
for either copyright owners or government officials to track the
movement of copyrighted materials as they pass from user to user.
Second, because P2P systems usually do not employ centralized transmission
nodes or distribution points, they are very difficult to shut down.

While both the digitization of information and the concept of file
sharing have existed for many years, the advent of the Internet
has made P2P copying possible on a scale never before imaginable.
The industry that, thus far, has been affected most dramatically
and visibly by the new technology is the music industry. The
main reason why the action in this field has been especially intense
is that musical files -- especially when compressed using the popular
MP3
format -- occupy relatively little space and thus are easily transmitted
through P2P networks. That circumstance underlay the enormous
popularity of Napster,
a modified P2P system, and Gnutella
(a “purer” example of the P2P model without an intervening server).
Using these systems, it is possible for individuals to create libraries
of their favorite songs by downloading free copies of them from
the Internet. Alternatively, individuals can "rip" MP3 files
from their own CDs using inexpensive or, in many cases, free
software designed exclusively for that purpose. Users
can then play-back these files in a variety of ways. They
can listen to them on a variety of portable
MP3 devices or directly from their hard drives, they can send
their files via email to other music fans, or they can upload their
files to the Internet for anyone to enjoy. And because the
music is in digital form, each successive copy sounds as good as
the original. The net result has been a radical and rapid
shoft in the way music is distributed and consumed. But music
is only the first industry to feel the force of this technological
revolution. As the bandwidth available to ordinary computer
users grows, as file-compression technologies for other types of
media proliferate, and as the size of hard drives increases, all
other entertainment industries will likely be transformed in similar
ways.

This module examines the legal and policy implications of P2P technology.
Is it beneficial or pernicious? Is it legal or illegal?
Which, if any, of the participants in the new networks should be
liable to the owners of the copyrights in material that is transmitted
and reproduced without permission?

It is crucial that, before beginning the module, you have at least
a rough understanding of the relevant technology and the principal
doctrines of copyright law. If you feel uncomfortable in either
dimension, you should consult the attached primers on digital
music and the basics
of copyright. You should then peruse the case
studies, which focus on the legal battle over Napster and the
legal status of alternatives to Napster. Next, we suggest
that you examine the Readings
associated with the module, following as many of the associated
links as you find interesting. At that point, you should be
well prepared to consider -- either on your own or, better yet,
in one of our electronic fora -- the Discussion
Topics. The module concludes with a substantial body of
Optional Related Material.

Aware that its system facilitated the nonpermissive reproduction
of copyrighted material, Napster employed various tactics to minimize
its exposure to liability: it neither
stored nor cached any digital music (infringing or otherwise)
on its servers; it trumpeted a "Copyright
Policy" in which it disclaimed responsibility for the activities
of its subscribers and insisted that they promise not to violate
the law; and it promised to "respond expeditiously to claims of
copyright infringement committed using [its] service." Unimpressed,
the
RIAA filed suit, accusing Napster of both contributory and vicarious
copyright infringement.

In its defense, Napster made three legal arguments. First, it invoked
the protection of sections 512(a)
and 512(d) of the Digital Millennium Copyright Act (DMCA), which
provides to the operators of "transitory digital network connections"
and "Information Location Tools" "safe harbors" against liability
for copyright infringement. Second, Napster argued that peer-to-peer
copying of digital files using its system constitutes ""the noncommercial
use by a consumer" of "a digital audio
recording device," which, pursuant to section
1008 of the Audio Home Recording Act, cannot constitute copyright
infringement. Because its members are not engaged in copyright infringement,
Napster argued, it plainly could not be liable for contributory
copyright infringement. Finally, Napster insisted that a
significant percentage of the uses of its system involves lawful
copying of musical files -- either because the owners of the copyrights
in the songs in question do not object to (indeed, encourage) the
duplication of their works or because the character of the copying
is such as to make it a "fair use." Consequently, Napster argued,
its system is manifestly "capable of substantial noninfringing uses,"
and thus is immunized against liability for contributory copyright
infringement by the decision of the Supreme Court in the Sony
case.

On February 12, 2001, the Court of Appeals handed down its much
anticipated ruling. The three-judge panel declared
that Napster must stop trading in copyrighted material and may
be held liable for vicarious copyright infringement. The company
was allowed to stay in business until Judge Patel modified her injunction,
which the appellate court labeled "overly broad."

During the next several months, a complex set of maneuvers erratically
but seemingly inexorably tightened the noose on Napster. In
March, Napster agreed voluntarily
to halt illegal song trades by implementing a filtering system
designed to catch copyrighted materials. In response, Judge
Patel opted not to shut down the service and ordered the record
labels to assist Napster in identifying individual infringing file
names, as well as song titles and artist names to be blocked.
Within a week of setting up its filters, the average
number of MP3 files shared by Napster users fell close to 60%
according to analysts at Webnoize. By early April, this number
had stabilized to 36% and Napster had blocked 311,000 individual
songs, as well as 142,000 various misspellings of those song names
or artist names. But in a hearing on April 10, 2001, Judge Patel
described Napster's filtering efforts as "disgraceful." Patel
suggested that "maybe the system needs to be closed down" if it
was unable to catch all copyrighted material. Nevertheless,
Judge Patel failed to take any further action against Napster and
instead opted to await testimony from the newly
appointed court mediator, A.J. "Nick" Nichols, who also served
as the court expert in Sun Microsystems' suit against Microsoft.
In late April, Judge Patel issued a memorandum requiring the
record labels to identify at least one infringing file on the ever-changing
network before Napster is obligated to block copies of the song.
In July, Napster voluntarily shut down its system entirely in order
to retool it. The record companies argued that Napster should
not be permitted to resume operations until it could guarantee "100%
compliance" with Patel's prohibition against infringing activities.
Judge Patel agreed, but Napster persuaded the Court of Appeals to
overturn this "draconian" remedy. In September, Napster settled
a secondary lawsuit against it by the National Music Publishers
Association (which represents the owners of copyright in musical
compositions, not to be confused with copyrights in sound recordings)
for $26 million. (How the company will be able to assemble
that much money is far from clear.)

Almost all of the ligitation up to this point had involved struggles
over the issuance of a preliminary injunction. In August,
the record companies sought to move the case forward, requesting
Judge Patel to grant them summary judgment in their substantive
case against Napster. In response, Napster argued that three
independent circumstances made summary judgment inappropriate:
(1) the record companies had not adequately identified and proved
their ownership of thousands of songs that they claim were unlawfully
transmitted over the Napster system; (2) that Napster should be
afforded an opportunity to show their entitlement to one or more
of the "safe-harbor" provisions in the Digital Millennium Copyright
Act; and (3) that the record companies have themselves engaged in
various forms of illegal behavior -- most importantly, price-fixing
and other kinds of anti-competitive conduct vis-a-vis music on the
Internet. Judge Patel showed little interest in the first
two of Napster's arguments. She has taken considerable interest,
however, in the third. This is a potentially explosive development
in the case. A finding that the record companies have engaged
in anti-competitive behavior could benefit Napster in several ways.
At a minimum, it could reduce the damages that the company must
pay (on the ground that the profits that the record companies claim
to have lost were based upon monopolistic pricing). More radically,
such a finding could support a judgment that the record companies
have engaged in "copyright misuse," which could prevent them from
recovering at all. Finally, the record companies could be
liable to Napster for damages based upon a violation of the antitrust
laws. Patel has yet to issue a definitive ruling on any of
these issues, but the fact that the Justice Department has undertaken
a separate inquiry into possible anti-competitive behavior by the
record companies lends some credence to Napster's position.

Meanwhile, the Napster executives are seeking to remake the company
in two ways. First, they are participating in a consortium
of companies that plans soon to offer music over the Internet under
the trademark "MusicNet."
Second, they are hoping by early 2002 to resume operations on a
subscription basis. Money collected from subscribers will,
they hope, enable them to obtain licenses from the record companies
to use their sound recordings legitimately.

Professional and popular reaction to the litigation and to the
(pen)ultimate decision of the Court of Appeals has varied widely.
Some members of the music industry clearly sympathize with the RIAA.
According to Ron Stone of Gold Mountain Management, which represents
such artists as Bonnie Raitt and Tracy Chapman, "[i]t is the single
most insidious website I've ever seen… its like a burglar’s tool."
Prominent individual artists and groups are speaking out as well.
One of the most outspoken critics of Napster is the heavy metal
rock group Metallica, which sued Napster in U.S. District Court
in Los Angeles for copyright infringement and racketeering in April
2000. In a surprising move, the band delivered to Napster
13 boxes containing 60,000 pages of documents identifying
usernames of people who allegedly made Metallica songs available
online and demanded that Napster "boot" them from the service. Napster
complied, blocking 317,377 user names from its service in early
May of 2000.

In his interview
with Slashdot, Metallica drummer Lars Ulrich stated, "I don't
want to sound too combative here, but you know, when somebody f---s
with what we do, we go after them." In his testimony
to Congress, Lars commented that "if you're not fortunate enough
to own a computer, there's only one way to assemble a music collection
the equivalent of a Napster user's: theft." Likewise, Sean
"Puffy" Combs, CEO of Bad Boy Entertainment, Inc. was horrified
at the infringement activities he alleges to have discovered transpiring
over the Napster site:

I couldn't believe it when I found out that this Napster
was linking thousands of people to the new Notorious BIG album "Born
Again," a week before it even hit the streets. This album
is a labor of love from Notorious BIG's friends to the man, his
kids, the rest of his family and everyone else whose lives will
never be the same since BIG passed. BIG and every other artist
Napster abuses deserve respect for what they give us.

However, not all artists are opposed to Napster. Notable supporters
include Rap singer Chuck D and modern rock bands Smashing Pumpkins,
Limp Bizkit, the Rosenbergs, and Ben Folds Five. Billy Joe Armstrong
of Green Day says, "I just want my music to be out, and that's always
been the main priority."

Industry observers suggest that, even if the RIAA prevails, it
may gain little. Napster lawyer David Boies was quoted in
a 60 Minutes II interview as stating, "This is a case that the record
industry can't win. If they shut down Napster today in the
United States, it pops up in a different country totally outside
their control."

In April, the five major recording labels launched two competing
initiatives to tap into the subscription model for downloadable
music. In one corner, RealNetworks became the technology partner
for MusicNet
(backed by AOL Time Warner, Bertelsmann and EMI Group). The
remaining two labels, Universal Music Group and Sony Music Entertainment,
opted to partner with Yahoo!
to launch Duet. Though details remain clouded, both MusicNet
and Duet are aggressively aiming for summer 2001 launches for their
respective services. While the lack of unanimity across all
labels is likely to weaken both offerings, these two joint ventures
may further erode Napster's popularity and long-term propspects.

The (apparent) demise of Napster has contributed
to the development and populaization of second-generation P2P systems.
The first and best known of these is Gnutella, a program developed
by Justin Frankel at Nullsoft (AOL's development house that is credited
with creating the MP3 player WinAmp.) The name, "Gnutella,"
is partly a tribute to the Free Software Foundation’s "GNU" project
and partly a play on "Nutella,"
Europe's popular chocolate-hazelnut spread. Executives at
AOL shut down the original Gnutella service one day after a limited
beta was released, denouncing it as an "unauthorized freelance project."
(Some observers pointed to AOL's announced merger with Time-Warner
as the driving force behind this decision. CNN describes Time-Warner
as having been "one of the loudest critics of Napster and MP3 piracy
as a whole.") Soon afterwards, however, the project was adopted
by bands of open-source programmers, and a variety of unofficial
sites across the Internet began offering the program for download.
(For more information about Gnutella, please visit the additional
resources section.) The original
Gnutella program was far less user-friendly than Napster and suffered
from scalability
limitations. Recently, however, three new services -- BearShare,LimeWire, and Gnotella
-- have begun offering to consumers improved versions of the program,
as well as convenient ways to obtain them.

Other, similar programs include Aimster,
which "piggybacks" on AOL's popular instant messenger (estimated
to have over 21 million users by Media
Metrix in November 2000), and Audiogalaxy,
which offers the highly popular "Satellite" software. The
most sophisticated of the second-generation P2P systems is FastTrack,
developed by a Dutch company. Fastrack is currently used by
the most rapidly growing new services, Grokster
(based in Nevis, West Indies), Music
City Networks (offering the widely hailed "Morpheus" software),
and KaZaA.

All of these new systems differ from Napster in two respects.
First, they permit exchanges of many types of material other than
MP3 files: photographs, movies, books, etc. Consequently,
they can argue more plausibly than could Napster that their systems
are susceptible of significant noninfringing uses (a fact whose
signficance will become apparent soon). Second, unlike Napster,
they have no central servers that keep track of the files that users
are transmitting. Consequently, they can argue more plausibly
than could Napster that they are unaware of and cannot control infringing
activities by their users.

The increase in the usage of these systems over the past few months
has been extraordinary, particularly in the United States.
Peer-to-peer copying of music in Europe remains significantly less
common that it was during the heydey of Napster. In the U.S.,
by contrast, the total number of songs copied per month now exceeds
the number copied during February 2001, the time of maximum Napster
traffic.

Fearing erosion of their markets, the record companies have initiated
lawsuits against several of the new companies. A threat to
commence litigation against Aimster prompted Aimster to file a declaratory
judgment action of its own, seeking to establish the legality of
its business practices. Most recently, the RIAA, joined by
the Motion Picture Association of American and several individual
movie studios, have brought suit against the developer and various
corporate users of FastTrack, claiming that, by assisting consumers
in copying vast numbers of songs and movies, the defendants have
engaged in both contributory and vicarious copyright infringement.
It will be several months before any of these suits reach judgment.
In the meantime, Internet-based P2P traffic continues to grow.
Even more worrisome to the record companies is that millions of
copies of the file-sharing programs have already be distributed.
Even if the RIAA prevails in all of the pending or planned suits,
it will be unable to recall those copies and thus will have great
difficulty stopping P2P exchanges.

The statutes and judicial decisions relevant to copyright law on
the Internet are numerous and complex. In this section, we
will deal primarily with the statutory law that is most relevant
to the distribution of online music (and other digital media).
This module assumes that you have some background training in, or
at least familiarity with, the fundamental principles of copyright
law. If this is not the case, we suggest that you first explore
some basic copyright
tutorials.

Copyright Act

The Copyright Act of 1976, 17
U.S.C. §§ 101 et. seq., provides copyright protection
both to "musical compositions" and to "sound recordings."
Thus, there will generally be two copyrights associated with any
single recorded song that is not yet sufficiently old to have passed
into the public domain. However, even if the musical composition
copyright has fallen into the public domain, a modern recording
of it will still be copyrighted.

Under 17
U.S.C. § 201, copyright originates
with the author of a work. This author may freely transfer
any or all of the exclusive rights that make up the copyright grant
(such as the right of reproduction and the right of distribution).
Authors of musical compositions and creators of sound recordings
often transfer their exclusive rights to music publishers and record
companies.

Composers and publishers are represented by a variety of institutions,
some of which license activities that otherwise would violate the
copyright laws -- such as the broadcast of musical compositions
by radio stations. Other institutions engage in lobbying and
anti-piracy efforts on behalf of the artists and publishers.
The Recording Industry
Association of America (RIAA) performs a variety of such functions
on behalf of its membership, which includes the largest record labels
in the world. The RIAA routinely patrols the Internet, searching
for pirated files, and sends cease-and-desist letters to apparent
copyright violators. The RIAA also initiates lawsuits
on behalf of its membership.

One of the earliest and most influential decisions pertaining to
the digital reproduction of copyrighted materials came from the
Supreme Court in a 1984 case challenging the legality of the video
cassette recorder (VCR). In Sony
Corp. v. Universal Studios, Inc., 464 U.S. 417 (1984), the Supreme
Court held that copying a television program
for noncommercial use within the home did not infringe the copyright
in the program. More specifically, the Court determined that
the practice of "time-shifting" -- i.e., recording a television
program for viewing once and only once at a later time -- was permissible
under the fair use doctrine. The Court then ruled that, because
one of the major uses of VCRs is time-shifting, the manufacturers
of the machines were not liable for "contributory copyright infringement,"
even if the VCRs were sometimes used for illegal purposes.
To escape liability, the manufacturers needed only to show that
their products were "susceptible of a significant noninfringing
use," which they had done. Whether the Sony doctrine is applicable
to technologies like Napster is currently
debated.

Audio Home Recording Act of 1992

The current struggle over peer-to-peer copying is not the first
copyright battle that has been waged on the digital music front.
In 1986, digital audio cassettes (DATs) were first introduced, and
many believed that this technology would take the place of the traditional
and ubiquitous analog audio cassette tape. Because the new
machines recorded music in digital form, they created a new threat
of large-scale high-quality piracy. Records and cassette tapes
are subject to wear and tear, and second- or third-generation copies
created from one of these analog devices are often scratchy and
of poor quality. Digital audio tapes, by contrast, allow for
"perfect" reproduction, in which each successive copy is identical
to its predecessor. The recording industry, consequently,
lobbied against the introduction of the DAT into the United States.
(Some industry commentators believe that the resultant delay is
responsible for the failure of the technology to gain consumer interest.
Others blame the lack of consumer enthusiasm on relatively high
equipment costs and consumer loyalty to pre-existing audio cassette
collections.)

Despite the fact that the threat of mass piracy supposedly posed
by DAT technology never materialized, the recording industry's lobbying
efforts did pay off in the form of a piece of legislation specifically
designed to appease copyright holders' concerns. The Audio
Home Recording Act of 1992 (AHRA), 17 U.S.C. §§1001-1010,
mandates the inclusion in DAT machines of copy-control devices that
limit the ability of would-be profiteers to create serial copies
of protected works. Under AHRA
§1002(a), a "digital audio recording
device" must conform to a Serial Copy Management System (SCMS) designed
to prevent multiple copies being created from a single work.
A "digital audio recording device" is defined
as a device capable of rendering a "digital audio copied recording."
To trigger the statute, a copy must be a digital reproduction of
a "digital music recording" and must be produced either directly
or from a transmission. See AHRA
§1001.
Finally, under AHRA
§1002(c), it is unlawful to attempt to circumvent the SCMS.
Consumers, however, also benefited from the Act. AHRA
§1008 provides that consumers who make noncommercial copies
of musical recordings utilizing a covered device or medium shall
not be made liable under a copyright infringement theory.

The AHRA has already been interpreted once in the MP3 context --
specifically in a suit against the manufacturers of a portable MP3
player. In that case, the RIAA brought suit against Diamond
Multimedia, a company that produces the Rio, an MP3 playback device.
The Rio is similar to a walkman and allows an MP3 user to download
sixty minutes worth of music files from his or her hard drive and
listen to the music remotely. In Recording
Industry Association of America v. Diamond Multimedia Systems, Inc.,
180 F.3d 1072, 1074 (9th Cir. 1999), the Court of Appeals
for the Ninth Circuit found in favor of the defendant, ruling that
the AHRA did not apply to the Rio device, because the computer hard
drive from which the Rio records could not be considered either
a digital audio recording device or a digital music recording within
the meaning of the Act. Moreover, according to the court,
because MP3 files are not coded with generation status or other
copyright information, and because copies cannot be made of the
files downloaded to the Rio, the SCMS would serve no useful function.

SDMI

Despite its victory in court, Diamond Rio and other hardware vendors
recently have been involved in the Secure
Digital Music Initiative (SDMI) to introduce copyright protection
mechanisms to their portable MP3 players. The SDMI is a working
group composed of over
one hundred and eighty businesses and organizations that are
trying to develop specifications for the secure distribution of
music over the Internet. The specifications are intended to
be cross-platform, so that they will be compatible with many different
hardware and software products. SDMI has already fallen behind
its initial proposed deadlines (it had hoped to have had its specifications
ready for incorporation into merchandise by Christmas 1999), but
it has selected a watermarking scheme and guidelines for an encryption
scheme that is designed to make copyright information readable from
digital music files. This information will be readable by
SDMI-compliant portable devices that eventually will refuse to play
pirated music files encoded with the copyright protection specifications.
We will discuss technological protection mechanisms, including SDMI,
in further detail in a later module. For more information
about technical alternatives in the context of digital music, check
out these
resources.

Digital Millennium Copyright Act (DMCA)

Where copyright protections are in place, it may be unlawful to
design a product that will circumvent that technology. The
DMCA
§1201(a) prohibits the manufacture and distribution of
certain devices that circumvent technological protection mechanisms
designed to prevent the unauthorized access of protected materials.
Prohibitions on the unauthorized access itself will come into effect
on the second anniversary of the Act. Jonathan Band, a lawyer
in Washington D.C., has written a
helpful memo on the DMCA. If you are interested
in further details about this protection, take a look at the RealNetworks
v. Streambox materials -- a case that has recently been settled.

The DMCA raises additional issues for Online Service Providers
(OSPs) that maintain pirated files on their servers or that link
to pirated materials. Under the DMCA
§512(c)(1) (and, indeed, under all but one paragraph of
the section), "the term ‘service provider’ means a provider of online
services or network access, or the operator of facilities therefor."
The DMCA §512(c)(1) exempts an OSP from liability for housing
on its servers copyright infringing material unless the OSP has
notice of infringing material and fails to move expeditiously to
remove it. Thus, unless the OSP knows that a site hosted by
one of its servers contains pirated MP3 files, it is under no obligation
to search out such infringing materials on its servers. The
OSP must, however, provide a contact person to whom copyright holders
can express concerns about possible infringing materials.
Once a copyright holder puts the OSP on notice that the infringing
materials are present, the OSP must quickly remove them. Thus,
if a group such as the RIAA gives notice to an online provider that
MP3 files are being transmitted across its systems, it can put pressure
on the system administrator take some kind of action to curtail
the alleged piracy.

Similarly, liability under the DMCA §512(d) is limited where
an online provider is "unwittingly linking or referring users to
sites containing infringing materials." The liability
exemption for "unwittingly linking" is limited to the circumstance
where provider is unaware of the infringement. If a search
engine provides an indexed list of links to counterfeit MP3 files,
the RIAA could argue that the fact that so many MP3 files are pirated
gave notice, or at least constructive notice, to the provider that
it was linking to infringing material. Relying on this provision,
the RIAA has already taken issue with at least one indexed MP3 search
engine. According to the RIAA:

We have communicated with Lycos about their new MP3 search
engine, and they have committed to work with us to develop procedures
to eliminate infringing sites from their directory. They also indicated
their intent to fulfill their obligations under the newly enacted
Digital Millennium Copyright Act, which requires them to take appropriate
action whenever they become aware of an infringing musical recording.

The Lycos search engine has since been reduced to little more than
a collection of dead links, a common problem encountered when searching
for MP3 files on the Internet. However, other sites have sprung
up offering sleeker indices and claiming to minimize the number of
dead links encountered when searching for MP3 files.

Over the last six months of 2000, the Copyright Office has conducted
a series of statutorily mandated public hearings concerning the
efficacy and wisdom of the DMCA. While the Copyright Office's
final report is expected to be submitted to Congress by the end
of February, actual changes are unlikely to be adopted until at
least 2002.

For an introduction to international copyright law, begin by reviewing
Findlaw's doctrinal summary entitled " International
Copyright Protection." Then, please review the following
articles from the Berne Convention, which provides copyright law
protection to foreign nationals in signatory states:

1. RIAA v. Napster: Imagine
that you are a Supreme-Court justice hearing arguments from both
the RIAA and Napster on appeal. How would you rule and why?
How do you see your decision affecting the development and usage
of P2P technology?

2. Will the second-generation P2P systems suffer the same
fate as Napster? Should they?

3. Many of the more vocal proponents of MP3 argue
that some music pirating is justified, because music companies are
already "ripping consumers off" through enormously high profit margins
on CDs and other non-Internet music sales. In fact, the major
labels have recently settled
with the FTC to end policies that are estimated to have added
$500 million to CD prices since 1997. Other observers disagree,
suggesting instead that music companies lose a great deal of money
each year on the unsuccessful CDs they produce, making some subsidy
derived from high profit margins on better selling items necessary
to enable the record label to continue production of more financially
risky projects ("portfolio diversification"). Who do you believe
has the more persuasive argument? Can or should the legitimacy
of music piracy be evaluated by economic observations such as these?

4. For the past few years, many people have been
arguing that the Internet will cause "disintermediation" (cutting
out the middleman in many consumer transactions) and therefore cause
consumer prices to fall. At least one record company executive
predicts just the opposite for the future of online music.
According to an interview
with Jeremy Silver of EMI, digital music creates reintermediation,
citing such increased cost factors as web hosting, music directories,
streaming technology, security, watermarking, and transaction companies.
Which view do you think is more persuasive? How do you think
the current spate of lawsuits are likely to impact this "supply
chain?"

5. Some observers believe that digital media
will resurrect the idea of micropayments, small charges for online
activities or purchases that accrue over time before payment becomes
due. Because individual record tracks are often too inexpensive
to purchase separately, would micropayments make more sense?
Would you support such a system? Do you believe that the major
labels would support such a system and would their support be necessary?

6. The WIPO
Copyright Treaty of 1996 provides that it shall be illegal to
attempt to circumvent technological protection measures implemented
by copyright owners. With the jurisdictional enforcement problems
created by the Internet, is international copyright law the only
remaining method through which countries can see that copyright
laws will be effective?

7. The first-sale doctrine in copyright law provides
that once a copyright holder has sold the tangible embodiment of
his work, he or she ordinarily will not be allowed to control its
future disposition. Some critics of SDMI argue that watermarking
and encryption technologies will in effect allow the copyright holder
to prevent any future sales or transfers of the work and will thereby
frustrate the first-sale doctrine. Should the SDMI be required
to insure that the original purchaser of a digital music file be
able to dispose of it as he sees fit, or will the market force the
price of digital music down to compensate for the reduced value
to the purchaser of the file who cannot resell or transfer the file
in the future?

8. To what extent should piracy be curbed by
law and to what extent should it be curbed through code (e.g., the
implementation of technological protection schemes)? How useful
are the two enforcement mechanisms likely to be in the context of
digital media distribution? This may become increasingly important
as content owners have recently shifted emphasis from encryption
to tracking of file sharing - raising fundamental questions about
privacy and monitoring. (Each of these issues will be reconsidered
later in the month.)

Signal
or Noise? A conference co-sponsored by the Berkman
Center and the Electronic
Frontier Foundation that explored the legal and social implications
of online music distribution. The conference was held on
February 25, 2000. The proceedings may be found in a RealVideo
archive. For more information on the legal and social
implications MP3 technology, read the briefing
book prepared in connection with the conference. In
addition, Harvard's policies regarding Napster and other P2P technologies
are discussed in a November 15, 2000 roundtable
discussion.